No more summertime for cotton

General Comments: Futures closed higher as snow moved through Texas and could have hurt the crop quality and perhaps yields. The system should continue to move east through the holiday and could créate additional losses in the Delta and Southeast. Quality has suffered with the storm, and there is potential for sokme yield loss as well.There are questions about demand in China as the government there is expected to offer its supplies into the domestic market. China made its announcement on sales yesterday, but the market largely ignored it due to the U.S. weather. The proposed sales could hurt demand for U.S. cotton in a big way if the government sales are made. Wire reports indicate that some production has been lost in China after recent bad weather in some growing áreas. Brazil conditions are reported to be very good in Bahia.

Overnight News: The Delta will see mostly dry weather. The Southeast should see some big rains today, then will turn drier. Temperatures will average near to above normal this week and below normal this weekend. Texas will see dry conditions. Temperatures will average near to above normal. The USDA spot price is 74.65 ct/lb. today. ICE said that certified Cotton stocks are now 0.236 million bales, from 0.232 million yesterday.

Chart Trends: Trends in Cotton are mixed. Support is at 78.00, 77.40, and 76.65 March, with resistance of 79.65, 80.50, and 80.95 March.

Dow Jones China to Auction off cotton stockpile this week

By Leslie Josephs

NEW YORK--The Chinese government is planning to sell part of its massive stockpile of cotton this week, an event long anticipated by traders of the fiber.

But while such a large sale would usually push down international cotton prices, concerns over the quality and price of the fiber for sale is expected to mute the effect.

The government plans to sell the cotton via auction starting on Thursday with a minimum price of 18,000 yuan a ton, equal to about $1.34 a pound, according to a notice posted on government cotton-industry website Cncotton.com.

Previous cotton sales have had only limited success. The China National Cotton Reserves Corporation held daily auctions from January through July this year, but mills bought just 25% of the cotton offered because of the high prices the reserve wanted, traders said.

Thursday's auction price is about 68% higher than the current benchmark of U.S.-cotton futures. At midday Tuesday, cotton futures were trading around 79 cents a pound.

In addition, the China National Cotton Reserves Corporation said it will sell cotton from the 2011 crop, raising concerns about the quality. Older cotton can grow brittle in storage, making it more difficult to spin into yarn and dye.

"I don't think [the auction is] a game changer" because of the quality, said Gary Raines, an economist at brokerage INTL FCStone. "You could have a Ferrari in the driveway [and] you can come back in 15 years to drive it, but don't expect it to be the same Ferrari."

Traders and analysts said they had been expecting China to release some of its reserves before the end of the year, a prospect that sent cotton prices to a nine-month low in early November. China's reserves total about 10.3 million metric tons, according to the International Cotton Advisory Committee, a Washington-based group that advises cotton-growing countries. The reserve is equal to about 40% of global production last year, according to the U.S. Department of Agriculture.

But cotton traders and analysts largely shrugged off China's announcement.

"The focus is on the U.S. weather," said Kona Haque, head of agricultural commodities research at Macquarie Bank.

A large storm passed through the eastern U.S. on Tuesday, after dumping snow on growing areas in Texas, the country's top cotton-producing state. Cotton for March delivery on the ICE Futures U.S. exchange rose to a one-month high of 79.65 cents a pound in early trade Tuesday.

"There are some concerns how much quality will be impacted from the ongoing wet weather," said Sharon Johnson, a senior cotton specialist at KCG Futures. "Yields could suffer as well depending on the extent and length

FCOJ

General Comments: Futures closed mostly a little higher again on forecasts for below normal temperatures continue in Florida.The freeze season is not that far away and there is usually some speculative buying that appears at this time and as soon as the cold air starts to filter in from Canada. The colder air hit the Midwest and Northeast over the weekend, but will moderate some with the passage of time this week. Traders are expecting USDA to lower production even more in coming production reports. The greening disease has affected crops in a big way and could cause reduced production for the next few years. Growing and harvest conditions in the state of Florida remain mostly good. It has turned drier, which is seasonal, and reports indicate that crops are in good condition. Brazil is seeing near to above normal temperatures and dry conditions or a few showers.

About the Author

Jack Scovilleis a veteran futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. His industry contacts in South America, Europe, Asia, and North America provide him with a unique and comprehensive view of these markets. Jack began working in the futures industry over 30 years ago and spent 10 years working on the floor of the Chicago Board of Trade in various roles, starting with The PRICE Futures Group since it was established in 1988. Jack writes daily commentaries - Morning Grains and Softs, in both English and Spanish and is regularly quoted around the world by news & wire services including Dow Jones, AP, Bloomberg, and Reuters. You can contact Jack by phone at (312) 264-4322 or by email at jscoville@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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